Fianna Fáil Finance spokesperson Michael McGrath has stated that Ireland’s credit union sector is not fulfilling its potential due to an excessively bureaucratic regulatory regime which is stifling its ability to serve the needs of the community.
Credit unions currently have €4bn out in loans to members which is about 30% of their available funds. On paper, the sector has about €6bn available to lend with the potential for a massive shot in the arm for the economy. However, 56% of credit unions are currently subject to restrictions on their lending activity imposed by the Registrar of Credit Unions. These include both restrictions on the size of individual loans as well overall levels of lending.
The Central Bank is undertaking a consultation process on additional regulations for the credit union sector across areas such as reserves, liquidity, lending and investments. This provides a welcome opportunity to remove some of the unnecessarily strict limits which are holding back the sector.
Deputy McGrath commented “The credit union sector has a proud tradition in communities throughout the country. With expert local knowledge and strong personal relationships, credit unions are able to make sound judgments about lending to individual customers, small businesses, the self-employed and farmers.
“While they have close to 3 million members overall, the reality is that the sector is effectively stagnant with the amount of its funds out on loan declining year after year. The sector can only make money if it is able to issue new loans. In too many instances, the ability of credit unions to do just that is being unnecessarily constrained.
“Credit unions have massively improved their regulatory framework in recent years with professionally qualified people amongst its employed and voluntary staff. The sector has improved its overall reserve ratio without resorting to the type of tactics employed by commercial banks who raised interest rates and charges at the expense of their existing customers. Credit unions are co-operating in shared service arrangements and implementing new regulatory and risk management systems. This needs to be reflected in removing some of the overly strict limits being placed on their lending activity. This will allow the sector to thrive and provide real competition to the banks. In so doing it can provide a major boost to local economies throughout the country.”
DÁIL QUESTION addressed to the Minister for Finance Michael Noonan by Deputy Michael McGrath for answer on 12/02/2015
To ask the Minister for Finance the number of credit unions currently subject to lending restrictions; the average length of time for which these have applied; and if he will make a statement on the matter.
The imposition of lending restrictions is the responsibility of the Registrar of Credit Unions, who is the independent regulator for credit unions. Within her independent regulatory discretion, the Registrar acts to support the prudential soundness of individual credit unions, to maintain sector stability and to protect the savings of credit union members.
As Minister for Finance, my role is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions.
I have been informed by the Central Bank that it has been necessary to put lending restrictions in place in credit unions where there are regulatory concerns and resultant risk to members’ savings.
The Registrar of Credit Unions informs me that currently about 56% of all credit unions are subject to lending restrictions. Lending restrictions are, in most cases, intended to be short-term in nature and kept in place until the credit union has addressed the issues giving rise to the particular concerns.
There are two main types of lending restrictions:
1. Monthly lending restrictions. At this time less that 10% of all credit unions have this restriction in place which limits the total amount of lending within one month. Therefore, over 90% of credit unions (i.e. over 350 credit unions) have no monthly lending restrictions.
2. Maximum loan size. The average loan size in the credit union sector is just above €6,000. Currently 10 individual credit unions have lending restrictions that limit the amount per loan to less than €10,000. Although there are individual credit unions with lending restrictions above €10,000 per loan, that the vast majority of credit unions (over 95%) can continue to make individual loans significantly greater than the average loan size for the sector.
These restrictions are reviewed on a regular basis to determine whether or not they are still set at appropriate levels. Reviews of individual lending restrictions are included within the planned 2015 supervisory work programme of the Registry of Credit Unions. Where a credit union can evidence improvements in its credit management practices, and systems and controls which support prudent lending, the Registrar is open to removal of restrictions. I have introduced legislative change whereby, as of 1 August 2013, regulatory directions are appealable to the Irish Financial Services Appeals Tribunal.
I have, on a number of occasions, highlighted the Governments’ recognition of the important role of credit unions as a volunteer co-operative movement in this country and also the importance of getting lending going in the economy. However, the issue of lending needs to be constructively considered in order to ensure a viable credit union sector into the future.